You experience plenty of firsts throughout life: your first cell phone, your first home, and your first vehicle. While acquiring goods in your name can be fulfilling, they all have one aspect in common—you’ll want to establish a prior credit history before applying for any of these purchases.
Credit history may also determine your eligibility for loans, credit cards, and lower interest rates. But what if you don’t have credit?
Discover these five ways to establish first-time credit and build a solid financial habit.
Acquire a Secured Card
Consider applying for a secured credit card when building your credit from bare bones. Secured credit cards are similar to standard ones; however, they require a deposit before approval.
In an age where credit card payments are better than cash, it’s easy for someone to build charges until they run out of funds and get into debt. But a secured credit card will only allow you to charge the amount you paid as your security deposit.
Become an Authorized User
Once you learn the basics of establishing credit, you'll want to put your newfound knowledge into practice. Becoming an authorized user on a significant other or family member's credit card can benefit those beginning their credit-building journey.
Remember that the card's payment history will appear in your credit files, so you'll want to consider choosing a primary cardholder with a history of healthy repayment habits.
Avoid Opening Multiple Accounts at Once
While having various types of credit is beneficial to your credit score, you'll want to avoid opening them all at once. Opening too many accounts at one time can hurt your score since you'll incur hard inquiries in a short period.
Practice Healthy Credit Habits
Remember that establishing credit may take time, and you'll want to build a history of timely repayments.
If possible, consider paying more than the minimum monthly amount to avoid incurring interest that could hinder prevent you from paying off a card in full. You’ll also want to limit the credit utilization on all open credit lines.
Keep Accounts Open
Your credit history’s length can also factor into your score, so you’ll want to keep your accounts open unless there is a compelling reason to close them. Closing your accounts can negatively affect your credit utilization by reducing the account’s age.
While learning how to establish first-time credit as a beginner isn’t simple, the payoff is rewarding! These moves may help you build your repayment history and promote a higher score in the long run.